2018 (9) TMI 1026 - AT - Income Tax

Addition u/s. 68 - unexplained share capital and premium - Held that - We have gone through the paper book filed by the assessee and found that in most of the cases, the investor companies had sufficient share holders funds, so as to cover the investments made with the assessee company and the AO has failed to enquire into such facts before doubting the creditworthiness of the share holders. The satisfaction of the Assessing Officer as to the credibility of explanation of assessee is the basis of invocation of provisions of section 68. However, such satisfaction must not be illusory or imaginary but must have been derived from relevant facts and evidences and on the basis of proper enquiry and material before him. In view of aforesaid facts and plethora of evidences submitted by the assessee, on which no reasonable doubts have been created by the AO, the onus that lay on the assessee under section 68, stands completely discharged on the part of the assessee. - Decided against revenue

Issues Involved:
1. Deletion of addition made under Section 68 of the IT Act on account of unexplained share capital and premium.
2. Determination of whether the assessee discharged its onus under Section 68 of the IT Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68 of the IT Act:

The case revolves around the deletion of additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act (IT Act) on account of unexplained share capital and premium. The AO had made substantial additions for the assessment years 2006-07 to 2010-11, arguing that the assessee failed to prove the identity, creditworthiness of the share applicants, and the genuineness of the transactions. The AO's concerns included the non-service of notices issued under Section 133(6) to the share applicants, meager profits declared by the share applicant companies, and the failure of the assessee to produce the directors of these companies for examination.

The CIT(A) deleted these additions, holding that the assessee had discharged its onus by providing comprehensive documentary evidence, including share application forms, board resolutions, PAN cards, audit reports, bank statements, and income tax returns of the investor companies. The CIT(A) emphasized that the AO did not conduct further inquiries to disprove these documents and failed to issue summons under Section 131 to enforce the attendance of the directors despite the assessee's request. The CIT(A) concluded that the AO's dissatisfaction was based on suspicion rather than concrete evidence.

2. Determination of Onus Discharge under Section 68:

The CIT(A) and the ITAT both concluded that the assessee had discharged its onus under Section 68 by providing adequate documentary evidence to prove the identity, creditworthiness, and genuineness of the share transactions. The documentary evidence included share application forms, board resolutions, PAN cards, audit reports, bank statements, income tax returns, and other relevant documents. The CIT(A) noted that the AO did not point out any defects in these documents or conduct further inquiries to disprove their authenticity.

The ITAT upheld the CIT(A)'s decision, emphasizing that the AO's dissatisfaction must be based on relevant facts and evidence rather than mere suspicion. The ITAT referred to several judicial precedents, including the decisions of the Hon'ble Delhi High Court and the Hon'ble Supreme Court, which held that once the assessee provides adequate evidence to prove the identity, creditworthiness, and genuineness of the transactions, the onus shifts to the Revenue to disprove the same.

The ITAT also noted that the AO failed to issue summons under Section 131 to the share applicants despite the assessee's request and did not conduct further inquiries to verify the documents provided by the assessee. The ITAT concluded that the assessee had satisfactorily discharged its onus under Section 68, and the AO's dissatisfaction was not justified.

Conclusion:

The ITAT dismissed the Revenue's appeals, affirming the CIT(A)'s decision to delete the additions made under Section 68. The ITAT held that the assessee had discharged its onus by providing comprehensive documentary evidence, and the AO failed to conduct further inquiries to disprove the same. The ITAT emphasized that the AO's dissatisfaction must be based on relevant facts and evidence rather than mere suspicion. The ITAT's decision was based on several judicial precedents, which supported the assessee's case.

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